10% Industrial Output Growth Brings Inflation Fears to Brazil

Brazilian industry Industrial output in Brazil grew 9.7% in February, the highest in the last four months and the 20th straight gain in year-on-year industrial production according to the latest release from the Brazilian government.

Due to this success, however, there are talks that the Brazilian Central Bank may consider raising the benchmark interest rate, the Selic, to hold demand as inflation quickens according to the bank's minutes of its March 4-5 meeting.

Cheaper credit and record low unemployment rates have bolstered domestic demand and industrial production. But annual inflation as measured by the benchmark IPCA index, jumped to 4.61% in February from an eight-year low of 2.96% in March.

Policy makers led by central bank president Henrique Meirelles, target annual inflation of 4.5%, plus or minus 2 percentage points to accommodate unexpected price shocks.

At the bank's March 4-5 meeting, the board considered raising rates for the first time since October, when they snapped the longest monetary easing cycle since the adoption of inflation targets in 1999.

The board voted unanimously to keep the rate unchanged at 11.25% for the fourth straight meeting. On March 27, policy makers in their quarterly report increased their forecast for 2008 inflation to 4.6% from a previous 4.3%.

Driving overall production up in February was the output of capital goods, which rose 25%, compared to the same month a year ago. Production of durable goods, such as cars, jumped 20.7%.

But official data also shows that stripping out seasonal factors, output fell 0.5% in February from January.

Mercopress

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